Natural gas drilling is the
single biggest factor that will keep the oil country tubular
goods (OCTG) sector robust and profitable throughout 2013 and
beyond, according to market players.
OCTG demand in the United States
was poised to improve at the close of 2012, and although the
sector started the new year slowly, prospects are still good,
some industry observers believe.
Were seeing a little
uptick in demand. The extremely cold weather we received from
Canada all the way down to the southern U.S., in opposition to
construction, was actually good for drilling oil and gas
wells, one trader said.
Low natural gas prices, high
levels of OCTG imports and increased domestic capacity were all
cited as headwinds by market players. But improvements in
natural gas prices, natural gas drilling activity and, thus,
OCTG demand--as well as a possible trade case against South
Korea and perhaps other foreign OCTG suppliers--could bring a
turnaround, sources said.
An industry analyst agreed that
demand is expected to improve in the near term, echoing recent
comments by large mills that the drill rig count might be at
its lowest level for the year as previously declining gas drill
rig numbers have stabilized. Meanwhile, oil drilling continues
We certainly think the
trend will be more toward the positive side going
forward, Lynn Lupori-Gray, managing consultant at
Mississauga, Ontario-based consulting firm Hatch Ltd., told
Others agree that the U.S. pipe
industry is set to benefit from growing natural gas demand,
according to Joel Johnson, senior vice president of sales and
marketing for the Americas at Houston-based Welspun Global
The reshoring of manufacturing
is one factor likely to increase demand, he told participants
at the National Association of Steel Pipe Distributors
annual convention in Las Vegas earlier this year.
Theres a lot of manufacturing, due to the low
energy prices, thats moving back to the U.S., he
At the same time, gas is
supplanting more-expensive coal as an energy source. Due
to the low gas prices, (coal) doesnt make sense, he
Natural gas prices are expected
to rise amid increased demand, which should once again spur
exploration, Johnson said. The (U.S. Energy Information
Administration) predicts a steady rise in natural gas
And with 60 percent of the
countrys gas and liquid pipelines at least half a century
old, replacement needs also should spur demand for line pipe,
according to Johnson, with domestic mills particularly likely
to benefit. A lot of these pipeline companies have a
Buy America philosophy, he said.
However, growing competition
from railroads could pose a threat to the pipe industry.
We do see railroads increasing their share of
transporting oil, Johnson said, adding that rail, while
still an expensive option, poses fewer right-of-way
Environmental opposition also
has slowed work on such pipelines as Calgary, Alberta-based
TransCanada Corp.s Keystone XL, for which Welspun is
supplying some product. Our government gets in the way of
making pipe and distributing pipe, Johnson said.
Welspun Tubular LLC, a division
of Mumbai, India-based Welspun Corp. Ltd., is in the process of
ramping up its electric-resistance welded (ERW) steel pipe mill
in Little Rock, Ark.
The number of drill rigs running
in the United States totaled 1,758 in the week ended April 19,
down 10.9 percent from 1,972 rigs a year earlier, according to
Houston-based oilfield services firm Baker Hughes Inc. The
number of rigs drilling for oil was up 2.5 percent to 1,371
from 1,337 in the same comparison--accounting for 78 percent of
all drilling activity vs. 67.8 percent a year earlier--while
rigs directed toward natural gas were down 39.9 percent to 379
The weekly average crude oil
spot prices were 8.9 percent lower than at the same point last
year, while natural gas spot prices doubled in the same
While demand for OCTG could pick
up, prices for most products continued to slide throughout the
first quarter as imports, especially from South Korea, shot up.
As long as those continue to come in as they are and
without some fundamental change in demand, prices will continue
to remain low, Lupori-Gray said.
Average distributor selling
prices for all OCTG products fell to $1,686 per short ton in
March, down 0.9 percent from $1,702 in February and 2 percent
below $1,720 in January, according to Tulsa, Okla.-based Pipe
Logix Inc., the 12th consecutive monthly drop. Average welded
OCTG prices fell 1.3 percent to $1,554 per ton in March from
$1,574 in February, while average seamless prices fell 0.7
percent to $1,818 per ton from $1,830 in the same
Some sources remain adamant that
a trade case against Korean producers of welded OCTG products
The Koreans are just sure
theyre going to get slammed with an anti-dumping suit.
The U.S. mills are calling everybody, saying theyre
definitely going to do this. Theyre not even hiding
it, the trader said, adding that it likely was the reason
for soaring imports from the Asian country in January.
Theyre trying to load up in advance of these
looming dumping suits. They know its going to
Lupori-Gray expressed caution,
however, saying there was no clear direction for a
case, which has been subject of industry discussion for
Shipments of OCTG from South Korea totaled a record 107,790
tons in January but fell to 62,434 tons in February, bucking
market speculation that imports from Korea would increase as
producers try to land material before the possible filing of a